Every mortgage approval comes down to one division problem. The lender adds the new house payment to the monthly debts on your credit report, divides by your gross monthly income, and compares the result to the limit for your loan program. That result is your debt-to-income ratio, or DTI. Learn which debts count and where each program draws its line, and you can work the numbers out before you ever apply.
Front-end and back-end ratios
Lenders look at two ratios, and each program sets its own limit for them.
The front-end ratio, also called the housing ratio, is the new house payment alone divided by gross monthly income. The house payment is PITI: principal, interest, property taxes and homeowners insurance. Mortgage insurance and any HOA dues get added in too. On FHA that mortgage insurance is MIP (mortgage insurance premium), and on Conventional it's PMI (private mortgage insurance).
The back-end ratio is the house payment plus every other monthly debt, divided by the same income. When a loan officer says "DTI" without qualifying it, this is the number they mean.
Gross income is pay before taxes, insurance and retirement deductions come out. A $62,400 salary is $5,200 a month gross, even if the deposit that hits your bank account is closer to $4,100. Lenders use the bigger number.
What counts as debt and what doesn't
DTI is built from your credit report plus a few obligations that don't always show up there, like child support. Your monthly living costs stay out of it.
| Counts toward DTI | Doesn't count toward DTI |
|---|---|
| Car loans and car leases | The rent you pay now |
| Minimum credit card payments | Utilities, phone, internet, streaming |
| Student loans, even at a $0 payment | Car insurance, health insurance, groceries |
| Personal and furniture loans | Installment loans with 10 or fewer payments left (rules below) |
| Child support and alimony | A loan against your own 401(k) on Conventional |
| Loans you co-signed for someone else | Co-signed loans the other person has paid on time for 12 months |
| Other mortgages you'll keep | Charge cards you pay in full every month (Conventional) |
Credit cards
Lenders use the minimum payment on the credit report, not the balance. If the report shows a balance with no minimum, FHA and Fannie Mae both count 5% of the balance, so a $2,000 balance becomes a $100 monthly debt. Fannie Mae's automated system uses the greater of $10 or 5%. USDA uses the same 5% figure.
Debts that are almost paid off
Fannie Mae counts an installment loan when more than 10 payments remain, and it can leave out one with 10 or fewer left unless the payment is large enough to strain your budget. USDA lets the lender leave out a debt with 10 or fewer payments remaining when its payment is no more than 5% of your gross monthly income. FHA applies the same 5% test to all such debts added together. A car lease always counts, no matter how few months are left on it.
Student loans
Student loans count even when you pay nothing, because the agencies assume a payment is coming. FHA uses 0.5% of the balance when the payment shows as $0, so $22,000 in student loans counts as $110 a month. Conventional, VA and USDA each handle it differently, and the student loans and DTI guide walks through every program side by side.
Debts someone else pays
If you co-signed your brother's car loan and he has made every payment from his own account for the last 12 months, Fannie Mae, FHA and USDA let the lender leave that payment out of your DTI. The lender needs 12 months of canceled checks or bank statements from him showing the payments. Without that proof, it counts as your debt.
401(k) loans
Fannie Mae treats a loan against your own retirement account as a contingent liability and doesn't count the payment once the lender has the loan paperwork. The catch is that the borrowed amount comes off the account balance if you're also using that account as savings on the application.
DTI limits by loan program
Each program publishes its own limits, and the automated underwriting system (AUS) is the software that applies them. FHA runs through its TOTAL Scorecard, Conventional through Fannie Mae's Desktop Underwriter (DU), and USDA through its Guaranteed Underwriting System (GUS).
| Program | Housing ratio | Total DTI | How it works |
|---|---|---|---|
| FHA | 46.9% | 56.9% | Limits with automated approval. Manual underwriting starts at 31% and 43%. |
| Conventional | No separate limit | 50% | Through DU. Manual underwriting is 36%, up to 45% with strong credit and savings. |
| VA | No separate limit | 41% guideline | Residual income decides. Above 41%, VA wants 20% more residual income. |
| USDA | 29% | 41% | A GUS Accept doesn't need a ratio waiver to go higher. |
FHA is the most forgiving on debt. AAA Capital Funding gets FHA approvals up to about 57% total DTI through automated approval, which is how QualRate's calculators model it (46.9% housing, 56.9% total).
VA works differently. Its guideline is 41%, but the real test is residual income: the money left each month after taxes, debts, the house payment and an estimate for upkeep and utilities. VA sets a minimum by family size and region. When DTI runs above 41%, VA wants residual income at least 20% above that minimum, and a buyer who clears it can be approved well above 41%. The VA loan requirements guide has the full table.
USDA starts at 29% for housing and 41% total. When GUS returns an Accept, the lender doesn't need a ratio waiver for higher numbers. A manually underwritten USDA loan tops out at 32% and 44% with a waiver and a 680 or higher credit score.
AAA Capital Funding will run your actual debts against all four programs with you. Call 888-601-8344, and what you do with the answer is entirely up to you.
One buyer, one FHA payment
Jordan earns $5,200 a month gross and pays $1,750 a month in rent. The rent doesn't count. These do:
- Car loan: $389 a month, $6,200 left
- Card A: $25 minimum, $600 balance
- Card B: $85 minimum, $2,700 balance
- Student loans: $22,000 balance with a $0 payment, which FHA counts at 0.5%, or $110
That's $609 a month in debts.
Jordan wants a $300,000 home with FHA 100% financing. That's a 96.5% FHA first mortgage plus a down payment assistance second that covers the 3.5% down payment ($10,500), so Jordan brings $0 for the down payment. The FHA 100% financing guide covers how the second loan works.
| Line | Monthly |
|---|---|
| Base loan $289,500 plus 1.75% upfront MIP ($5,066.25), total $294,566.25 at 5.75% | $1,719.01 |
| Property tax at 0.95% a year | $237.50 |
| Homeowners insurance | $283.00 |
| Annual MIP at 0.55% | $132.69 |
| House payment | $2,372.20 |
| Other debts | $609.00 |
| Total | $2,981.20 |
Front-end ratio: $2,372.20 divided by $5,200 is 45.6%. That's under FHA's 46.9%, so housing is fine.
Back-end ratio: $2,981.20 divided by $5,200 is 57.3%. FHA's 56.9% limit on $5,200 is $2,958.80, so Jordan is over by $22.40 a month. At these numbers the highest FHA price Jordan reaches is $296,000.
The fastest ways to lower your DTI
Pay off the right debt
The right debt to pay off is the one that drops the most monthly payment for the fewest dollars. Paying a balance down partway barely moves a minimum payment, so pay the chosen account to zero.
Jordan needs to cut $22.40. Paying off Card A takes $600 and removes $25 a month. The total drops to $2,956.20, or 56.85%, and the $300,000 home qualifies.
Paying off the car takes $6,200 and removes $389 a month. That pushes Jordan's FHA price to $309,000, and at that point the 46.9% housing ratio becomes the limit instead of total debt. Each $100 a month of debt you remove is worth roughly $14,000 of FHA buying power at 5.75% when total DTI is what's holding you back.
Add a co-signer
This is the first fix AAA Capital Funding reaches for, and most of the buyers we get approved have a co-signer. A parent or grandparent can co-sign, even on Social Security or SSI. A co-signer doesn't go on the title and doesn't have to live in the home.
Say Jordan's grandmother receives $1,500 a month in Social Security that isn't taxed. FHA lets the lender gross up non-taxable income by 15%, so it counts as $1,725. She owns her home free and clear, and her $300 a month in taxes and insurance counts as her debt. With her on the loan, Jordan's FHA maximum climbs from $296,000 to $394,000. Run your own numbers with the co-signer calculator or read the co-signer mortgage guide.
Count every dollar of income you're entitled to
Non-taxable income gets grossed up. AAA grosses up SSI, disability and other non-taxable income 15% on FHA and 25% on Conventional and VA, which is the Fannie Mae standard on Conventional. A second job, overtime or bonuses with a two-year history can count too, and so can a spouse or partner who will be on the loan.
Pick the program with the room you need
The same debts can fail one program and pass another. Jordan's $609 in debts against $5,200 still reaches $296,000 on FHA, but Conventional caps total DTI at 50% and, unless the $0 is a documented income-driven payment, counts Jordan's student loans at 1% of the balance, which is double FHA's figure.
Plug your own debts into the DTI calculator and it shows both ratios for every program at once. When you want a broker to look it over, call AAA Capital Funding at 888-601-8344. We'll talk through which debt to pay first and whether a co-signer or a different program gives you more room.